Doctor Pot
Well-Known Member
I know it's counterintuitive, but essentially printing money as a means to fend off the recession is actually the best thing to do right now. I'm sure people will disagree with me, but it's true. The reason is that the value of the dollar is based on how much people want it vs. how many dollars are in people's possession. I'll get to why this is important later. Right now, a lot of people are trying to get money, and a lot of people lost money in the housing market bubble, so there is less money circulating than usual. This means, we're actually in a period of deflation. The value of the dollar has been increasing lately. It's true! That is not actually a good thing though because it makes people pull their money out of investments.
Now, you might be thinking, if all these people lost money in the bubble, then where did it go? The answer is that it didn't actually go anywhere, it "disappeared" as house values fell. This might seem counterintuitive because we like to think of money as something tangible, but it's more of a system of debt and credit. I can put $1000 in the bank, and then the bank can loan that money to another guy. I have $1000 in the bank, and that guy has $1000 in his hand. So did the money just double? No, because the bank owes me $1000 and that other guy owes the bank $1000, so it balances out. Accountants have found some pretty creative ways to generate money by loaning it to themselves, this is how companies like Enron and Worldcom operated. That's illegal of course, but not impossible.
Now, the Federal Reserve works by controlling the supply of money, so as to keep its value stable. It's the only entity that can legally generate money out of thin air. It also loans money to the Federal Government pretty much whenever they ask. Of course, if too much money is generated, the value of the dollar falls. But right now, the value of the dollar is going up, so you can actually generate money in a situation like this without having massive inflation. Of course, generating money like this raises the national debt, but the debt is only to the Federal Reserve, which won't actually make the government pay it back.
Now, US dollars used to be backed by gold, and money used to be in the form of precious metals in general. This worked well because these metals are rare, impossible to counterfeit, and easily transported. But, the price of any commodity can change drastically based on availability. For instance, during gold rushes, the value of gold has gone down as supply increased, at least in the vicinity of the gold rush. And during a bank run, the value of gold skyrockets as everyone tries to withdraw their gold from the bank. Modern communications have only made this worse, as news of a bank run could spread coast to coast in seconds. Even today, the price of precious metals fluctuates drastically over the course of days or weeks. But the value of the dollar stays pretty stable. Because the dollar isn't backed by anything, that makes it a lot easier for the Federal Reserve to control its value, and keep it fairly stable.
Now, I'm sure there's plenty of Zeitgeist fans here who are going to insist that the Federal Reserve is controlling the money supply so as to control the country. This is sort of true, but they're by no means malevolent about it. They're on your side, honest! Everyone wants the economy to do well, and everyone wants the value of the dollar to remain stable, including the Federal Reserve.
I know defending the status quo isn't really popular here, but I think it's important to know the facts, or at least the reasoning behind the government's decisions.
Now, you might be thinking, if all these people lost money in the bubble, then where did it go? The answer is that it didn't actually go anywhere, it "disappeared" as house values fell. This might seem counterintuitive because we like to think of money as something tangible, but it's more of a system of debt and credit. I can put $1000 in the bank, and then the bank can loan that money to another guy. I have $1000 in the bank, and that guy has $1000 in his hand. So did the money just double? No, because the bank owes me $1000 and that other guy owes the bank $1000, so it balances out. Accountants have found some pretty creative ways to generate money by loaning it to themselves, this is how companies like Enron and Worldcom operated. That's illegal of course, but not impossible.
Now, the Federal Reserve works by controlling the supply of money, so as to keep its value stable. It's the only entity that can legally generate money out of thin air. It also loans money to the Federal Government pretty much whenever they ask. Of course, if too much money is generated, the value of the dollar falls. But right now, the value of the dollar is going up, so you can actually generate money in a situation like this without having massive inflation. Of course, generating money like this raises the national debt, but the debt is only to the Federal Reserve, which won't actually make the government pay it back.
Now, US dollars used to be backed by gold, and money used to be in the form of precious metals in general. This worked well because these metals are rare, impossible to counterfeit, and easily transported. But, the price of any commodity can change drastically based on availability. For instance, during gold rushes, the value of gold has gone down as supply increased, at least in the vicinity of the gold rush. And during a bank run, the value of gold skyrockets as everyone tries to withdraw their gold from the bank. Modern communications have only made this worse, as news of a bank run could spread coast to coast in seconds. Even today, the price of precious metals fluctuates drastically over the course of days or weeks. But the value of the dollar stays pretty stable. Because the dollar isn't backed by anything, that makes it a lot easier for the Federal Reserve to control its value, and keep it fairly stable.
Now, I'm sure there's plenty of Zeitgeist fans here who are going to insist that the Federal Reserve is controlling the money supply so as to control the country. This is sort of true, but they're by no means malevolent about it. They're on your side, honest! Everyone wants the economy to do well, and everyone wants the value of the dollar to remain stable, including the Federal Reserve.
I know defending the status quo isn't really popular here, but I think it's important to know the facts, or at least the reasoning behind the government's decisions.
